--%>
Assignment Help - homework help

Effect of shipping costs

Assume that pound is being pegged to the gold at 6 pounds per ounce; on the other hand the franc is being pegged to the gold at 12 francs per ounce. Which, of course, states that equilibrium exchange rate must be the two francs per pound? If existing market exchange rate is 2.2 francs per pound, how you would take benefit of this condition? Explain about the effect of the shipping costs?

E

Expert

Verified

Assume that you required buying 6 pounds by using the French francs. If you will buy 6 pounds directly in foreign exchange market, it can cost you 13.2 francs. Otherwise, first you can buy an ounce of gold for 12 francs in France and then ship it to the England and sell it for the 6 pounds. Now, it will only cost you the 12 francs in order to buy 6 pounds. It is therefore valuable to ship gold as a result of the overpricing of the pound. Evidently, you may have an arbitrage profit by selling the 6 pounds for 13.2 francs in foreign exchange market. Arbitrage profit can be 1.2 francs. Up till, we have assumed that the shipping costs don’t exist. In case, it costs more than 1.2 francs to ship an ounce of gold, there may be no arbitrage profit.

   Related Questions in Financial Accounting

  • Q : Firms attaining the U.S. firms

    Presently, several foreign firms from both the developed and developing countries attained high-tech U.S. firms. What would have motivated these firms in order to attain the U.S. firms?

    		•
  • Q : Calculation of NPV Calculation of NPV:

    Calculation of NPV: Calculation of NPV is done through the same method of discounting as described above. However in this case the rate is predefined for  discounting. It is the cost of overall long term resources, whether debt or equity. This co

    		•
  • Q : Discrimination to women and minority

    Most of the organizations have established policies to remedy discrimination whenever hiring women and minorities. Discuss whether you feel that affirmative action programs, reverse discrimination, and criteria of comparable worth are suitable forms of remedy. You mus

    		•
  • Q : Functions of Bank Write some of the

    Write some of the functions of Bank?

    		•
  • Q : Essay-People Dependent on technology

    PEOPLE DEPENDENT ON TECHNOLOGY TOO MUCH: Science has developed tremendously in past few years and with the development of science many technologies have entered this world. Today everything is being done with the h

    		•
  • Q : Merits of Budgetary Control Write down

    Write down the merits of Budgetary Control?

    		•
  • Q : What is Triangular arbitrage What is

    What is meant by the Triangular arbitrage?  Explain about the condition which provides rise to opportunity of the triangular arbitrage?

    		•
  • Q : Meaning of Bill and Hold What is the

    What is the meaning of Bill and Hold in Accounting? Briefly describe it.

    		•
  • Q : Payment method-Buy pound or investing

    When you have visited the London, you have purchased a Jaguar for £35,000, which is payable within the three months. Enough cash is there at your bank in the New York City that pays 0.35% of interest per month, compounding monthly, to pay for car. Presently, spo

    		•
  • Q : Historical Cost of Liabilities State

    State the Historical Cost of Liabilities?

    		•